International Arbitration Newsletter - February 2021 | Regional Overview: Europe
International Arbitration Newsletter - February 2021 | Regional Overview: Europe
The most relevant European updates from the global International Arbitration and ADR practice group at Garrigues.
French court refuses to enforce an award issued by convicted arbitrators
The Paris Court of Appeal has allowed Mr. Khaled Nasser Ben Abdallah Al Misnad’s appeal against the enforcement of a US$ 26 million award in favour of SEGQ, a Qatari subsidiary of the Lebanese construction group Société d’Entreprise et de Gestion.
The French Court decided that the arbitral tribunal had violated international public policy by changing the manner and seat of the arbitration from a Qatar-seated arbitration administered by the Qatar International Centre for Conciliation and Arbitration (QICCA) to an ad-hoc arbitration seated in Tunisia, especially when this decision was adopted without even hearing the parties. In addition, the three members of the arbitral tribunal were found criminally liable for their conduct in the arbitration and sentenced to three years’ imprisonment.
In the context of an agreement entered into by SECQ and Mr. Al Misnad for the construction of the Dana and Sarah Towers in Doha a dispute arose over cost overruns, which had to be resolved according to the following clause: “in case of dispute a local arbitrator(s) shall be assigned to resolve the conflict”.
Al Misnad filed a request for arbitration in 2010 with the QICCA, SEGQ disputed the institution’s jurisdiction and both parties appointed arbitrators who, in turn, chose the chair. The tribunal then decided that the arbitration should take place on an ad-hoc basis and with seat in Tunisia. This decision was challenged by claimant whose appointee resigned soon after. After a series of further challenges before the Qatari courts and before QICCA, the institution replaced the panel with three new arbitrators. This newly appointed QICCA tribunal decided to uphold its jurisdiction and published a final award where SEGQ was ordered to pay US$ 7 million and costs to the claimant.
Simultaneously, the Tunisian-seated ad-hoc arbitration continued despite all of Mr. Al Misnad’s challenges and issued the final award, a fortnight after the QICCA award had been published, ordering Al Misnad to pay US$ 26 million.
This second award is the one that has given rise to the enforcement procedure in France where the Paris Court of Appeal concluded that the decision to change the type and seat of the proceedings violated international principles of due process as it not only ignored the arbitration agreement, prejudging the international element in the proceedings, but also by failing to hear the parties on the matter.
This dispute has given rise to proceedings in other jurisdictions such as Tunisia, Lebanon and Qatar, where a criminal court in Doha found that the Tunisian-seated ad-hoc arbitrators had engaged in criminal activities designed to harm Mr. Al Misnad intentionally. It is understood that this conviction is now being appealed in Qatar.
German Constitutional Court’s decision accelerates the end of intra-EU BITs
The German Federal Constitutional Court in Karlsruhe (the Bundesverfassungsgericht) rejected a request made by the insurer Achmea for interim relief, without even going into the merits of the case, arguing that there was no connection between the termination agreement to end intra-EU Bilateral Investment Treaties (BITs) and the insurer’s claim.
Achmea won a €22 million UNCITRAL award against the State of Slovakia, which was set aside by a German ruling that followed the landmark European Court of Justice´s (ECJ’s) decision that concluded that the arbitration clause contained in a BIT between EU member States was incompatible with EU law, pushing more than 20 member States to enter an agreement to end their respective BITs.
Achmea brought its constitutional claim on the grounds that both the ECJ and the German courts that had followed the precedent were in violation of constitutional and public international law. Achmea also requested urgent interim measures to halt Germany’s ratification of the BIT termination agreement.
Finally, the Bundesverfassungsgericht concluded that Achmea had failed to present evidence that showed the impact of the BIT termination agreement on its constitutional claim, especially when the BIT related to the claim was the one entered into between the Netherlands and Slovakia.
Tajik State airline escapes Lithuanian award
The US District Court for the District of Columbia found it had no personal jurisdiction over Tajik Air (TA) and dismissed a petition lodged by UAB Skyroad Leasing (Skyroad), an affiliate of Lithuanian AviaAM.
In 2013, Skyroad obtained a first award at the Vilnius Court of Commercial Arbitration (VCCA) for TA’s lack of monthly lease payments, requiring the airline to pay US$ 2.3 million plus interest. When again TA fell behind on the monthly payments and did not return an aircraft once the lease had finished, Skyroad launched a second arbitration. On this occasion, the arbitral tribunal also ruled in favour of Skyroad and ordered TA to pay US$20.2 million in damages, 8% interest and legal costs.
Last year, Skyroad came before the DC court seeking to enforce the award, but TA responded that the case had to be dismissed on the basis that there were no sufficient “minimum contacts” with the US that would satisfy constitutional due process requirements. Skyroad then argued that the airline was an agent of the State of Tajikistan, which, under the US Foreign Sovereign Immunities Act, allowed the Court to exercise personal jurisdiction over TA.
The judge ruled that TA had the presumption of being a separate company form the Tajik State and that therefore, if that presumption was not rebutted, the airline enjoyed all the due process protections granted under the US Constitution. The judge added that Skyroad had failed to show that Tajikistan had an “unusual level of State control” over TA.
Court in The Hague unfreezes Albanian revenues
The District Court of The Hague lifted the attachment on revenues received by the Ministry of Infrastructure and Energy of Albania in the context of a series of agreements with Royal Dutch Shell and with San Leon Energy on the basis that Mr. Francesco Becchetti and other ICSID creditors had not proven that these revenues were not for public use.
Whilst an ICSID committee has yet to decide on the annulment, the investors wish to enforce in various European countries (Belgium, Austria or the Netherlands) the 2019 award that ordered Albania to pay €110 million for the State’s politically motivated campaign against the claimants who had invested in a TV station.
For The Hague Court, the Shell agreements were not only commercial in nature and the revenues generated under them could also serve to fund the Albanian exchequer. In addition, as the Court had no access to the San Leon agreements and could not review them, the attachment of those revenues was also lifted.
The investors have confirmed that they will appeal this decision.
Spanish constitutional court gives recognition to arbitration
The TC, Spain’s constitutional court, very recently upheld an appeal for protection of constitutional rights that sought to overturn a judgment by Madrid High Court setting aside an award and its later clarification after finding that public policy had been violated based on denial of the right to effective judicial protection.
The claimants filed an appeal for protection of constitutional rights pleading denial of effective judicial protection, in the form of the right to obtain a reasoned and founded judgment, arguing that Madrid High Court had imposed on arbitration awards the same rule on the review of reasoning as applies to judicial judgments, when in reality arbitration cannot be seen in the context of effective judicial protection, nor is the reasoning of an award a public policy matter, and therefore it could not be set aside on the ground of insufficient reasoning.
The TC admitted the appeal after finding it had particular constitutional relevance on which there is no TC case law and because the potential denial of a fundamental right was based on a reiterated interpretation by Madrid High Court that could potentially have an adverse effect on that right.
It was clarified by the TC that, although action to set aside awards is a judicial review mechanism provided to guarantee that the arbitration proceeding is conducted consistently with its rules, that review has very limited contents and does not allow a review of the arbitrator’s decision on the merits, being restricted only to the grounds for setting aside specified in article 41 of the Arbitration Law (LA): determining the legality of the arbitration agreement, the arbitrability of the dispute and procedural regularity in the conduct of the arbitration proceeding.
The TC focused on where the boundaries of public policy lie with respect to the reasoning of the award, explaining that, whereas the duty to give reasoned judgments is a constitutional requirement for protection of the right to effective judicial protection, the obligation in relation to arbitral awards is different and is configured in article 37.4 of the Arbitration Law. Namely, for arbitral awards, reasoning is a legally configured requirement expendable at the lawmaker’s request and – the court added – only an award that is irrational, arbitrary or shows a patent error breaches the obligation to be reasoned imposed by article 37.4 of the Spanish Arbitration Law. Giving specific examples, the TC explained that article 37.4 states that “the award shall always be reasoned”, but does not impose on the arbitrator an obligation to decide on every argument submitted by the parties or to state which items of proof it has taken as a basis for their decision.
By applying these elements to the examined case, the TC concluded that the appealed decision violates the right to effective judicial protection since Madrid High Court entered into hearing the merits of the dispute, and by doing so overstepped the constitutional limits of the duty to give a reasoned and consistent decision. The TC also noted that Madrid High Court pleaded an alleged violation of public policy due to a discrepancy with the arbitral tribunal over the evaluation of evidence; a matter concerning the merits of the case and bearing no relation to the reasoning of the award.
For all of these reasons the TC upheld the appeal for protection of constitutional rights recognizing the appellants’ right to effective judicial protection without denial of the right to a defense and set aside Madrid High Court’s decision with the proceedings being rolled back to a stage before the decision was rendered.
Miner threatens Spain over uranium ban
Berkeley Energía (BE), an Australian mining company operating a €450 million uranium concession in Western Spain has announced it will sue the Spanish State if a proposed amendment to a climate change bill banning the mining of uranium is passed as, according to BE, it would constitute a “retroactive de facto expropriation”.
According to some sources, this uranium mine is the only one of its kind in the whole of Europe and BE had acquired a three decade long concession with the possibility of a further 60 year extension for which, BE says, it had invested €94 million.
In 2020, Spain’s coalition government proposed a generalised ban on the mining of all radioactive materials that would also affect existing concessions and authorisations and projects already being executed, such as the one being developed by BE.
BE argues it has been forced to obtain more than a hundred licenses, permits and other authorisations from both local, national and European authorities and that it has had to face a myriad of unsuccessful challenges filed by different environmental NGOs. The only hurdle that still remains, says BE, is the building permission to build the uranium concentrate plant before it can begin construction on the project.